Agricultural land purchase provides boost for Family Pension Trust30 September 2016
When discussing property as an asset of a pension scheme, it is typical to think in terms of straightforward bricks and mortar, such as office premises or warehousing.
Property assets, such as agricultural land often lend themselves well to Family SIPPs, like the Rowanmoor Pensions Family Pension Trust because farms frequently tend to stay within the same family for generations as a way of life and income, and succession planning is often a key part of a family’s financial planning requirement.
There are several opportunities here. The land can generate an income by being let to a third party, planning permission could be sought, with a view to selling with permission in the future, or the land could be developed for commercial use. All are viable options.
Investment in land can be an attractive proposition in general. Let us assume that a Family Pension Trust, held by a husband and wife, holds cash from previous pension transfers. In the short term the couple intends to purchase some land, initially letting it for grazing, but with a long term vision to obtain planning permission, with a view to selling the land in future with the benefit of that planning permission.
Providing the purchase and any lease arrangements meet pension regulation requirements, the scheme trustees can consider the purchase of the land from any party, including connected persons. In situations such as these, we need to investigate the circumstances fully, to rule out any benefit to the members personally, over and above, or in place of, the benefit to the scheme of acquiring the land. A benefit could be interpreted as stopping someone else building on the land and ruining the view from their home, which of course would not be for the benefit of the scheme, but for the benefit of the members personally. So, whilst the property (the land) may be close to the couple’s home, it should not immediately adjoin their home residence. We will also ensure that the valuation reflects this and can evidence that the land can be sold on the open market as a standalone investment, and with no linked value to their home.
Valuations must meet our standard requirements for the purchase of the land, which include written advice from an independent Royal Institute of Chartered Surveyors (RICS) qualified surveyor. The report must be addressed to the trustees of the Family Pension Trust, including Rowanmoor Trustees Limited and will need to include (but is not necessarily limited to):
- Location and address of the land
- Description of the land
- Reference to any environmental and contamination issues affecting, or likely to affect, the land and/or surrounding areas
- Market value of the land
- Market rental value of the land
As the land is to be let, we will look for an agreement being in place (note that an intention will suffice but an already established agreement is even better) that at completion, a lease will be entered into with someone who will use the land. This will ensure that the asset is income producing; further evidence that this is a genuine investment for the benefit of the scheme.
We will also provide property owners liability insurance through our Rowanmoor Pensions Property Insurance Policy, which will be paid through the scheme. This cost may be recharged, by the members on behalf of the scheme, to the tenant through the terms of the farm business tenancy.
Once the land transaction has completed, the couple will continue to receive rental income into their Family Pension Trust, until such time that they have received planning permission and sell the land off at a potentially increased value.
It is important to remember that pension scheme transactions may take longer than expected, especially as we require full due diligence to be carried out and there are often multiple parties involved in the process. We will need to be made fully aware of any specific timescales or other requirements by the members at the earliest opportunity, which might also eliminate any potential problems, hazards, or unauthorised charges from HMRC.
The Family Pension Trust offers a multitude of benefits due to its scheme structure, as pooling funds within one or more common investment funds offers wider investment opportunities to the scheme members. Further information can be found within the property and scheme literature pages of our website including the scenario illustrating this example. Alternatively, please call us to discuss your property investment requirements.